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If you’re having trouble paying your credit card bills every month, a debt management plan from a nonprofit credit counseling agency might be the help you need.

The plan lumps your various credit card payments into a single payment, can cut your interest rates in half, and gives you a structured path to pay off the debt over three to five years.

TRACK YOUR DEBT THE EASY WAY

How a debt management plan works

Where to go: Debt management plans are offered by credit counseling agencies. If you’re thinking of going this route, look for an agency that’s a nonprofit and accredited by the National Foundation for Credit Counseling.

Expect a credit counselor to go over your financial situation thoroughly and to discuss several options, not just a debt management plan. Don’t feel pressured to sign up the same day any program is offered. Take time to think about it.

What’s covered: Unsecured debts, such as credit cards and personal loans. Secured debts — such as those for houses and cars — aren’t covered. Nor are student loans.

What the agency does: The counselor will contact each creditor to notify it of the debt management plan and make itself the payer on your account. The counselor may seek concessions from each creditor, which can include lower interest rates, lower monthly payments or “re-aging” an account to stop late fees.

Each month, your payment will go electronically to the counseling agency, which then pays your creditors. You get a progress report each month.

You’ll likely pay an enrollment fee as well as a monthly fee for each credit account in the plan. (Even with those, your overall monthly payment should be lower.) The fees can vary depending on state regulations, but agencies charge $20 to $30 on average.

What to expect while on the plan: Be prepared to live without credit cards for as long as you’re in the program. Most credit card issuers will require that an account entering a debt management plan be closed. You may be allowed to keep a card for emergencies or business, though; ask before you sign up.

Also, avoid any new credit obligations for the duration of the plan. Your creditors will see any new obligations on your credit report, and they may withdraw their concessions.

You should strive to make the payments on time, every time. Creditors have given you some major concessions, and they tend to insist on you meeting their terms. One missed payment and they may be done with waiving fees and charging less interest.

When debt management plans work best

If you’re struggling with revolving debt, the upsides are:

A single, lower payment.

No more (or at least fewer) phone calls from creditors or collectors.

The ability to finally put debt behind you.

It’s probably not right for you if:

You are having trouble paying secured debts, such as a mortgage or car payment.

Your income barely covers necessities, such as food and utilities.

You want to continue to use your credit cards.

Having to live without credit cards or new credit might be an advantage if you worry about controlling spending.

Because you have to commit to many months of payments, you’ll want to make sure there is room in your budget to do so. Over the years you’re paying the plan, unexpected expenses will crop up, so access to some kind of emergency fund is crucial.

It’s even possible that financial coaching, by itself, is all you need to catch up. If you decide a debt management plan is right for you, it’s smart to get help with budgeting and money management to prevent you from falling behind again.

Is debt management the right option for you?

A debt management plan is only one option when debt seems overwhelming, and it might not be the right one for you.

Your credit score might initially drop, as accounts are closed and you have less available credit. Enrollment in a debt management plan will be noted on your credit report, but it is supposed to be treated as neutral in credit scoring. Long term, as you get a handle on your finances, your credit score is likely to climb.

Data is sparse, but what is available suggests at least half of clients don’t successfully complete the plans. We suggest asking if your counseling agency will share its completion rate data with you.

Bankruptcy, which can be the best option when your debt is overwhelming.

Debt settlement, although there are significant downsides that make it a last resort.

You may be able to do for yourself some of what credit counselors would do for you in a debt management plan. For example, you could pick up the phone and ask your credit card company about hardship programs; the worst they could do is say no.

Conquer Your Credit

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